- What is a contrarian really supposed to do?
- The gaps we exploit are bigger than ever
- The trillion-dollar green-grid bubble is back
Most highly successful investors make their money by being in the right place at the right time. Exuberant booms can make people very rich, very fast.
Recent examples include the tech bubble, cryptocurrencies, meme stocks, fossil fuel energy in 2022 and green energy in 2021. But the story goes right back to the South Sea and Mississippi Bubbles of the 18th century.
If you’d like to profit from such booms, stay tuned for next week’s expose in Fortune & Freedom, when our tech expert Sam Volkering takes over. He’s created a service designed to identify such melt-ups in advance and help investors position themselves to profit.
Over at The Fleet Street Letter, we’re not very good at that sort of thing. I suspect it’s because we’re a little too old fashioned, what with 85 years of publishing history. So The Fleet Street Letter is a very different sort of beast…
We’re contrarians, as the editor William Rees-Mogg explained back in a 1998 edition:
The Fleet Street Letter has always had a strongly contrarian flavour from the time when we were campaigning against the still-popular appeasement policy of the Chamberlain government.
What does contrarian mean? It does not mean that every widely held opinion is mistaken; obviously it is not. It does mean that every widely held opinion needs to be examined to see if it is wrong.
The contrarian rejects the authority of the crowd. It follows that a contrarian investor will try to buy in the cheapest market and sell in the dearest, whereas mass opinion always tries to sell in the cheapest and buy in the dearest.
Sounds good. But how do we actually put this into practice?
The big hint is that William Rees-Mogg tried to hire Nigel Farage to become an editor of The Fleet Street Letter many years before he eventually signed on in 2022. I suspect for a simple reason that explains the purpose of our newsletter rather well.
Nigel is an expert at spotting the gap between what voters want and what their politicians are offering them. Whether it’s Brexit, immigration or selling the UK’s gold reserves, Nigel has a nose for such gaps.
When some of Nigel’s City acquaintances made vast amounts of money by shorting the pound on the eve of the Brexit referendum, the media was quick to allege ill-doings. But the truth is that people in the City understood Nigel had spotted the gap between what people wanted and what their political parties were willing to offer. And they exploited it financially when the people finally got to have their say.
Nigel did it again with the Brexit Party, when the politicians attempted to ignore the will of the people. But such gaps don’t just apply to politics. They are all around us.
There are gaps between platitudes and physical reality.
There are gaps between technology and its actual implementation.
There are gaps between prices and value in financial markets.
And there are gaps between policies’ intended outcomes and their actual outcomes, especially in the arena of monetary policy.
What we do at The Fleet Street Letter is to point out such gaps to our readers, analyse whether they must close and when, and then find ways to profit from it.
Since my interest in finance, economics and politics began, I have never seen an environment when so many gaps have opened up so wide.
They don’t always close when you want them to, of course. Indeed, figuring out when delusion will end is the difficult part.
In politics, the whole point of democracy is that the gap between what voters want and what their political parties are offering must eventually close. Elections are the accountability mechanism.
Take, for example, the popularity of nuclear power. The people have long demanded it, with polls in favour. But politicians held off for fear of being tainted by political radiation.
Investors could easily exploit this gap between what people want and what was on offer. The gap has begun to close as the world attempts net zero without a green form of baseload power… other than nuclear.
Since we wrote about this opportunity, many governments have seen the light and began ramping up their nuclear efforts. The gap is closing, hopefully without a bang…
By far the biggest gap between delusion and reality is of course on net zero itself. We have the political platitudes and the scientific demands on the one hand, and physical realities on the other.
Once you understand precisely why net zero isn’t plausible, as The Fleet Street Letter subscribers have since March, you know how this gap will close. And which investments will profit from it. More on that in a few weeks’ time.
By the way, yesterday we took a look at The Fleet Street Letter’s impressive legacy. It turns out that there really is nothing new under the sun when it comes to climate change.
Consider some of these excerpts from 2008, including a headline which read “Global warming – a new secular religion?”
Can retailers afford to go green?
Pick up a paper, turn on the television, visit the cinema or walk into a shop, and the chances are that you will be bombarded with information on the environment, ethical trading, sustainability and the whole carbon family comprising footprints, labelling, emissions and offsets.
Inevitably, some aspects of this barrage of information being thrown into the marketplace by the ‘Green Lobby’ are having an effect on the commercial practices of the retail industry and on the behaviour of shoppers. The big question is how exactly do these effects manifest themselves?
Another issue with many consumers’ ‘green credentials’ is that there is a divergence between what they claim to do, and their actual behaviour. This is leading to some seriously conflicting results in surveys.
Could’ve been written today, right? The article goes on to consider whether companies can actually achieve their environmentally friendly targets without hammering shareholder returns.
The wild valuations we saw for green tech stocks in 2021 were also a feature in 2008. Below, I’ve added a guest article from 2008 about the inherent flaws of the green energy boom we’re seeing today.
As you’ll see, only the names of the politicians have changed. Everything else has remained the same. The green bubble is back, bigger than ever, but it’s the same bubble.
But before you go back to the future, back to my main point. When gaps between delusions and reality open up, it’s only a matter of time before they close again. That’s true of politics, ideology, financial market valuations and just about everything else in life.
Over at The Fleet Street Letter, we expose these delusions, figure out when their bubble will burst, and show investors how to profit when the gap closes.
We hope you’ll join us.
In the newsletter business, we have a rule: show don’t tell. And so, tomorrow, we’ll show you The Fleet Street Letter instead of telling you about it.
Editor, Fortune & Freedom
PS There are only two men I know of who have managed to profit from both a bubble’s formation and its bust. Richard Cantillon was one, but he did so from both the Mississippi Bubble and the South Sea bubble in turn about 200 years before The Fleet Street Letter was launched.
The second is the investment director of The Fleet Street Letter, Eoin Treacy. You can find out what he’s telling investors to do these days, here. (Capital at risk).
The trillion-dollar ‘green grid’ bubble
By Brian Durrant, 23 February 2008
Reality apart, what could be better than totally ‘clean’ technology, or more realistically, an alternative energy and infrastructure (AEI) boom? Or should that be ‘bubble’?
Eric Janszen, founder of the iTulip financial blog, has caused quite a stir with his Harper’s article, The Next Bubble: Priming the markets for the tomorrow’s big crash.
His thesis is that the web, telecoms and housing overvaluations were no accident – the US has to operate as a kind of perpetual ‘bubble blowing machine’ to keep its growth going. The next big bubble, according to Janszen and a growing number of gurus and analysts, will be the AEI bubble. True, AEI was going to be the next big thing 40 years ago. This time, though, it really is looking different.
The AEI market is being stoked by:
– billions in seed corn and venture capital funding. HSBC reckons over $100bn was invested in clean energy, worldwide, last year and that clean energy firms returned 26% on investment.
– the ‘politics of fear’. Energy security has risen to the top of the agenda thanks to the geology and geopolitics of oil and fears of terrorist attacks on long supply lines.
– the fact that the message about man-made climate change is getting through. At least in terms of what the media majority have to be seen to endorse.
Whoever gets into the White House now, including John McCain, there are two certainties in America’s future. One, a carbon tax (there already is one in California) and; two, a lot of federal support for AEI down the line to complement piecemeal state initiatives. Even George Bush had emphasised AEI in his 2007 State of the Union address, not to mention the fact that CEOs from GE to BP to Toyota now keenly tout their revenue streams from clean technology.
A pre-bubble bubble?
There have been early signs of bubbly behaviour though. For example, the soaring (and subsequently slumping) share prices of solar companies last year, led by the success of China-based JA Solar’s IPO. All these companies rely on selling their wares into subsidised markets, which currently exclude the biggest of all, China itself. Few, if any, make real profits. The current crop are largely deploying silicon-based Photovoltaic (PV) technology, a serious obstacle to further growth given the tight and volatile supplies of refined silicon, controlled by a handful of refineries.
At the same time, PV is dubbed ‘toy tech’ at R&D centres such as Caltech, given its low energy conversion rates of 20%- 30%. In addition, unless (or until) there are step changes in storage technology to eliminate the ‘intermittent’ nature of solar power (the same goes for wind power) it’ll never be accepted as anything more than a piffling sideshow by the hard-nosed engineers who run the electricity grids hour by hour.
So after years of false starts and lack of interest (it’s perceived as dull tech by investors), perhaps storage technologies may become a hot investment sector. Hybrid ultracapacitor/battery systems are showing promise, in particular. Until storage is sorted, the main solar business will be the installation of solar panels on the sides of buildings or roof tops – with big volumes in prospect. Already, Solar City Inc, California’s leading panel installer, can’t find anything like enough installers to fulfil its orders.
Influx of credibility
Meanwhile, there is a propaganda onslaught to soften up the mob for a flood of AEI IPOs. For example, Al Gore is fast becoming the poster boy for the AEI economy. He has joined John Doerr, legendary venture-capitalist at Kleiner Perkins, who assisted at the births of Amazon, Google, Genentech and Sun Microsystems, amongst others.
Moreover, the founders of Google themselves, Messrs. Brin and Page, are getting more and more air time as ‘green grid’ leaders. Google is investing hundreds of millions to turn itself ‘green’ by running a next generation data centre on wind power, and investing in AEI start-ups.
One of the key leftovers of the dot.com bubble is a cadre of rich, tech literate, youngish men (and women) who now need to spend less time with their families. They are putting money, drive and brainpower into what many call the ‘next big driver of the US economy’.
Led by IBM, Sun Microsystems and Google, among others, the electronic system and software honchos are gearing up to try and turn the electricity industry into a branch of AEI. They talk of the coming of the ‘electricity web’ and ‘peer-to-peer electrical networks’, rather than the traditional grids. They think in terms of microcontrollers, microprocessors and smart sensors along with smart algorithms and software embedded in anything that uses, generates, distributes or stores electricity.
The momentum is gathering behind the notion that the world can’t wait for disruptive clean-energy technologies to tackle the climate change problem, and the US can’t risk its future for much longer by having to depend on importing over 20 million barrels of oil a day. Interest in radically disruptive technologies is taking wing.
A case in point, Hyperion, a start-up, backed by unspecified funding from Altira Group, based at the Los Alamos National Labs. It’s developing a ‘hot tub’ sized nuclear plant to be encased in cement and buried underground to fuel up to 20,000 homes for five years. It’s to be powered by a steam turbine and operates like a uranium hybrid battery. It has no moving parts. The goal is to start manufacturing it in New Mexico in 2014, starting with 4,000 units.
A loony idea? Yes, reckons one top research executive at the Alamos Labs. He suggests it’ll be a typical ‘bubble’ ramp and that the founders and the backers will float the company into a hype bubble well before it goes into production. But at least it doesn’t sound quite as dangerous as the Russian project to sell offshore floating nuclear plants to the likes of Indonesia and Burma.
More tangible and less ‘bubbly’ is NanoSolar. Messrs. Brin and Page put seed corn funds into it on personal account. The five-year-old company, with $100m behind it, has gone into production with solar cells printed on aluminum foil like a newspaper. The cells are based on copper indium gallium selenide, rather than scarce and costly refined silicon, and can produce energy at less than a dollar a watt. This brings it in line with coal, oil and gas fuels. The company says it has already pre-sold its total output for the year.
There is money to support this optimism
These contrasting examples capture what much of the American economy has always been about – boundless optimism, amidst what Schumpeter called ‘gales of creative destruction’, and working the effects of high-risk ‘trial and error’.
When the dot.com and telecoms bubbles blew up, there were still highly significant and transformative leftovers, apart from a cadre of tried and tested tech entrepreneurs – eBay, Amazon, Google, social networking platforms, fibre optic cables, broadband access and whole new ways of living and having our being online, as well as the fraud and massive exercises in wealth destruction.
So, depending on your definition of AEI, it could be a trillion-dollar bubble or even bigger. Does AEI include, for instance, the expansion of rail to reduce pollution from the roads, lighter vehicles, nano-coatings for turbines, the whole value of new energy ‘smart buildings’ and LED bulbs? What about the whole IT and consultancy business of developing the so-called ‘fifth fuel’ – saved energy?
And will there be enough washed, rinsed and recycled funds to spawn and sustain it, given the super-critical mass of ‘fissionable material’ in some of the credit derivative pits? Billions in venture funds have already kick-started the AEI part of the mix, with a lot more available, and there’s no doubt that financial engineers in New York and London will work with Sovereign Wealth Funds, among others, to create some interesting financial instruments to enable the ‘man in the street’ to participate in the next major bubble. You have been warned.